It’s a surprisingly tough choice, considering how your business is your baby. You’ve nurtured it for years, giving it life and love. It’s paid you back in full and then some, providing you with a nice livelihood and taking care of your employees and their families.
I can’t tell you which route to pursue. But I can give you a couple of options that might help you with your decision.
Tired of keeping pace with your competitors?
I remember after my father retired, he told me, “I was just tired of it. It was time to plan for a change.”
I can’t blame him. While all of us love the thrill of running our own business and the roller-coaster ride it provides, Father Time has a way of catching up with us. Or perhaps, maybe it’s the fact that the competition catches up with us.
When you’re at the top of your game, you’re a leader in the industry. You push the envelope. You look for new innovations. You set the tone But when you don’t, you get complacent. That’s when a business suffers. A company can’t stand still – it either has to grow or shrink. And your competition surely isn’t standing still. They are hungry for what you’ve got.
So how can you tell if you measure up? How do you know if you’re leading the pack, or if you’re slipping now and potentially could slip more in the near future?
One way to find out is to use a tool like PeerComps.
PeerComps: Take an industry snapshot
PeerComps is a tool I like to use when companies are trying to evaluate themselves against the competition. Before we get to PeerComps, however, let’s talk about comparables.
The biggest barometer of how you stack up is your financials. The bottom line tells all. With publicly-held companies, you can access their numbers and compare your own performance. With privately-held companies, it’s a different story.
That’s because privately-held companies don’t have to disclose their financials to anyone – except their lenders. Those lenders, in order to properly measure risk, will pool their financial data in a dataset maintained by the Risk Management Association (RMA).
The data is shared without personal information, just the financials of the company, so bankers will be able to produce comparables. Appraisers access this dataset when preparing valuations, but it doesn’t come cheap.
In essence, what PeerComps set out to do was produce access to these “comparables,” much like homeowners can get when their realtor taps into the Multiple Listing Service (MLS) for residential homes.
Comparables that won’t break the bank
Launched in 1998, PeerComps and their affiliates have gathered information on over 7,000 transactions from Small Business Association lenders. These are companies that have been sold, and each transaction will be categorized by NAICS code, industry classification or keyword, or other financial variabilities.
In other words, you can tap into the recent sales of label companies comparable to your own, and see what the owner netted in the end.
PeerComps notes that approximately 90% of these transactions are “asset sales.” If all real estate, cash, accounts receivable, and non-operating assets were included in the sale, then all liabilities will have been stripped to achieve a typical “asset sale.”
Just like in the RMA dataset, all company names will not appear. Instead, you’ll see keywords or industry classification.
PeerComps will show you:
- Business type
- North American Industrial Classification System (NAICS) Code
- NAICS industry classification
- Enterprise or “asset” price (furniture, fixtures, equipment, inventory and goodwill)
- Transaction date
- Transaction state
- Seller’s Discretionary Earnings (SDE)
- Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
- Assets (inventory, furniture, fixtures and equipment)
- Transaction price and associated multiples include normal fixed assets, normal inventory, and goodwill
Warning: Proceed with extreme caution
Keep in mind that you’re looking at comparables, and this is just one piece of data that a potential buyer would consider. There is so much beyond the financials of a company that an investor scrutinizes, including:
Your vision: What strategic niche are you building for the future? How will you remain competitive in the marketplace for years and decades to come?
Your people and your culture: What is your staff morale? How is the turnover rate? Are key salespeople staying with you and working for the future?
Your industry: Are you in an up-and-coming industry, with multiples on the rise? Or are you the last of the dinosaurs?
Your role: How much of the company is dependent upon you (this primarily impacts smaller companies) and is there a dedicated transition team in place when you leave?
Those are just a few of many questions a buyer will ask about – and it’s why PeerComps cautions you against relying solely on its data to make your decision. You need an experienced, industry-specific business broker or an M&A advisory firm to add in further context.
It’s no different than when you’re considering selling your house: You can get an MLS comparables report, but then you rely on a realtor to assess your own property and help you price your house comparable to the market.
More answers: Valuing your equipment
Whether you sell or grow, one part of the business you need to consider is your equipment. I want to shed some light on an aspect of the business that you may not have considered: Divesting your assets.
Backes Auctions helps companies sell their equipment -- especially printers and those in printing-related fields.
Backes is a commercial auction company that covers the Midwest and beyond. Now in its 41st year of business, Backes Auctions has sold equipment from mom-and-pop shops to extremely large companies.
No one needs to tell you how important equipment is to your business, but you may not be aware of what it’s worth, or the options you have to upgrade your own equipment or sell it through auction.
Assessing price: the up-and-down game of selling equipment
Backes Auctions handles the sale of equipment in two ways. First, it can provide appraisals on individual equipment, or it can provide an estimation of what an auction would gross for an entire facility.
Selling equipment is straightforward when it comes to standard equipment that can be absorbed by the public, such as pallet shelving. For complicated equipment, a more thorough appraisal is required. Backes will reach out to dealers and industry experts to establish a proper price.
For example, digital machines are tricky, as you not only have the hardware but the software and its compatibility. This can complicate issues for a potential buyer.
It also can lead to disappointment for sellers if they have unrealistic expectations. Backes Auctions talks about the “social attachment” owners have to their equipment. You know what you paid for it, but equipment can become obsolete – fast. Two years ago, it was worth a lot. Today, you’re lucky to get pennies on the dollar.
The elephant in the room: What will you do next?
The social attachment we just mentioned runs deeper than your equipment. There is also a fear factor when it comes to making the decision whether to grow your company or sell your company: It’s the fear of life after the sale.
For many business owners, their company and their work is their life. They can’t imagine what they would do on a daily basis without work in their life. This is far more debilitating than you think. It’s why many business owners work until the day they die, even if their health and mental state are deteriorating.
It’s also why, if you decide to sell your business, you should establish a plan for yourself: A strategic vision of what your life will involve – philanthropy, consulting, travel, whatever – and how you’ll keep yourself busy and fulfilled.
Two data points...but they require more
Planning for personal vision of the future is definitely a big part of your decision to stay or go, but let’s get back to PeerComps and appraisals from Backes Auctions. Why do these serve as the smart starting point for making your decision?
Because they’re grounded numerics. They provide you with the real world figures that a buyer will look at when making a buying decision. A buyer doesn’t love your company like you love your company. They’ll be looking at PeerComps and equipment appraisals, as well profit margins and growth opportunities, in order to calculate their ROI.
Gather all the data you can and then work with a team of trusted advisors to make your decision. Weigh the qualitative and the quantitative in your decision-making process. They’ll help you see the big picture and make the right call in the end.
Rock LaManna, President and CEO of LaManna Alliance, helps printing owners and CEOs use their company financials to prioritize and choose the proper strategic path. Rock can be reached by email at firstname.lastname@example.org.